Winter is already here. No, its not a comment on the prevailing weather conditions or some unispiring Game of Thrones reference. It’s what best describes Zimbabwean telecoms and the general business environment.
One news item that’s been trending all day is how Econet Wireless, the country’s largest mobile operator, and in a lot of respects a beacon of success in terms of corporate performance, has reduced its staff’s salaries by 35%, starting next month.
This wasn’t an unexpected move. In fact, the staff was notified of these changes, though it wasn’t stated how much of an adjustement would be made, and to whom. It’s not just Econet staff that have been affected. It has been reported that its subsidaries, Mutare Bottling and Liquid Telecom, will also be affected by these adjustments.
All this has been attributed to forced tariff reductions effected by the telecoms regulator POTRAZ, as well as additional costs that mobile operators are now facing due to taxes on airtime.
Besides these industry specific issues that have made telecoms more challenging, it’s hardly been a great year for Econet. According to its latest financial results, revenue and profit declined, it still is faced with capital expenditure obligations that come as a consequence of plans for network rollout, It’s had to deal with the challenges of bad debtors, voice revenues which make up a huge part of revenue continue to decline and the operating environment is hardly the best for any sort of business.
At the risk of sounding like a prophet of doom, this action by Econet is a fair indicator of what sort of adjustments other operators are likely to consider in the short to medium term. One huge cost for telecoms operators is labour, and if you can’t afford to let go of staff, salary adjustments are what follow.
Is there light at the end of the tunnel?
For now, this looks like its just the first wave of a very tough period. That’s not to say that salaries will be lowered again or people will get retrenched. It’s just that the reality is most of the factors that have been pulling Econet and every other operator back are beyond their control.
Legislation on taxes doesn’t just go away easily, especially with the way national coffers have been a bit dry. The issue of tariffs doesn’t seem like its negotiable either. In fact, POTRAZ has actully primed itself to force operators to lower these tariffs at the end of this year and next year as well.
The huge and incredibly complicated puzzle called the Zimbabwean economy won’t be solved by Econet or the other operators as well.
The only salvation lies in improved fortunes through better performances. In a company like Econet that’s listed and for the better part run by decent mangement, reversed salary reductions, bonuses or increments can only be a factor of great results. To do that in this economy requires the best approach to product and service rollout which considers issues like price and product fit.
In Econet’s last financial results, the star worth watching was data and broadband, followed by financial services in the form of EcoCash and its all its kin.
We know that Econet has always championed mobile money related services, that approach won’t change. But while it seems like Econet has already started fiddling with its internet services model, it’s going to take a lot more than just a hit and miss affair to turn broadband into the saviour the operator needs. That segment already has other competitive elements that Econet has to deal with as well. In this telecoms environment, none of that is going to be easy.